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Bank of Canada Deputy Governor, Paul Beaudry, believes digital assets are not developed in a way to create a systemic risk for the financial system, at least not thus far. However, he acknowledged that as the industry expands, it could evolve to become a rival to legacy financial systems.
Canada’s Financial System Fared Well Through the Pandemic
Speaking at the Ontario Securities Commission Dialogue 2021 on Tuesday, Paul Beaudry said Canada’s financial system was resilient enough to get through the pandemic without bearing major financial troubles.
Beaudry argued that a robust regulatory framework, well-capitalized financial institutions, and substantial support from the government have helped the Canadian financial system to remain solid. Consequently, bankruptcies are at multi-year lows, with few businesses showing signs of financial weakness.
“The resilience of Canadians and our financial system helped make the economic impact of the pandemic less damaging than it could have been. This resilience has helped households, businesses and financial institutions come through the pandemic in reasonably good financial health.”
Beaudry also outlined some vulnerabilities and risks that are jeopardizing the country’s financial system. Among the major issues, he pointed out the high demand for housing, which has been pushing prices higher levels since the pandemic.
Meanwhile, when asked if cryptocurrencies pose a significant risk to financial systems, Beaudry responded that he doesn’t think cryptocurrencies are “developing in a way that creates a systemic type of risk for a financial system” up to now, adding that they are “quite removed directly from our financial system.”
However, he noted that as the market grows bigger and more people, particularly retail, invest in it, crypto could become a risk. Though he insisted that they are closely monitoring the industry.
“We’re not at the point yet of thinking this a big risk for the economy but this is something we’re keeping an eye on very closely.”
In terms of payment, Beaudry assuredly stated crypto-assets are not widely used as a means of payment. He said that most people acquire and store digital assets to speculate on price movements. “Although it’s been sold as the idea that it plays a big role in payments, it really doesn’t play that much of a role,” he said.
When addressing stablecoins, however, Beaudry admitted that they have “the potential to play more of a bigger role” in payments. “That’s something we’re also keeping an eye on,” Beaudry added.
Canada Sets Itself Apart From US
While Canada has been quite welcoming towards the emerging crypto industry, the US has been less hospitable.
More recently, Reuters reported that the US Treasury Department is in talks with a number of crypto veterans to explore the risks and benefits posed by stablecoins. The outlet also noted that officials are trying to figure out potential regulations. This contrast in approach could be significant, especially given
Notably, Canada has approved several physical Bitcoin ETFs. On the other hand, the US Securities and Exchange Commission (SEC) continues to postpone or reject physical Bitcoin ETF applications, while the only ETFs approved so far are those tied to future contracts.
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SEC To Discuss Crypto At Upcoming Meeting Next Week
The SEC is to hold a panel discussion called “Helping to Ensure Investor Protection and Market Integrity in the Face of New Technologies,” on December 2 to talk about some risks posed by crypto and digital assets.
In the upcoming Investor Advisory Meeting — which the SEC has said will be open to the public — the regulatory body will discuss ways to protect investors that want exposure to the crypto market.
The panelists will include law professors, financial markets experts, and some industry experts. Among them, Alie Emdad, a professor at Graves School of Business and Morgan State University, who is also founding director of the Center for the Study of Blockchain and Financial Technology, and Kristin Smith, an executive at The Blockchain Association, will attend.
Meanwhile, the European Council has reached an agreement on a framework for the Markets in Crypto Assets (MiCA). This implies that the Council and the European Parliament can now begin negotiations with regard to crypto regulation.
According to a statement on its website, the MiCA aims to adopt a regulatory framework that encourages innovation but, at the same time, protects investors and preserves financial stability. “The package aims to support innovation and the uptake of new financial technologies while providing for an appropriate level of consumer and investor protection,” the announcement said.
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About the author
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird’s US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions.